Is  the  Exemption  of  Intangible 
Personalty  Within  the  Power 
of  the  General  Court? 


ARGUMENT  BEFORE  THE 

Committee  on  Taxation  of  the  Massachusetts 
Legislature, 

FEBRUARY  io,  1898. 


By  CHARLES  R.  ELDER. 

BOSTON : 

J.  A.  Cummings  Printing  Co.,  252  Washington  Street. 
1898. 


Is  the  Exemption  of  Intangible 
Personalty  Within  the  Power 
of  the  General  Court? 


EMBODYING  THE  ARGUMENT  OF 


CHARLES  R.  ELDER, 

CITY  SOLICITOR  OF  MALDEN, 


BEFORE  THE 

Committee  on  Taxation  of  the  Massachusetts 
Legislature, 


FEBRUARY  io,  1898. 


BOSTON : 

J.  A.  Cummings  Printing  Co.,  252  Washington  Street. 
1898. 


Recommendations  of  the  Tax  Commission. 


1.  An  inheritance  tax,  levied  with  respect  to  realty  as  well  as 
to  personalty,  at  the  rate  of  five  per  cent,  with  an  exemption  for 
estates  not  exceeding  $10,000  and  an  abatement  of  $5,000  on 
estates  between  $10,000  and  $25,000.  The  revenue  from  this  tax 
to  be  distributed  from  the  State  treasury  among  the  several  cities 
and  towns,  one-half  in  proportion  to  population,  one-half  in  pro¬ 
portion  to  assessed  valuation. 

2.  A  tax  on  occupiers  in  proportion  to  house  rentals,  only  the 
excess  over  $400  of  rental  being  taxable. 

3.  Abolition  of  the  present  taxes  on  intangible  personalty, 
such  as  stocks,  bonds,  loans  on  mortgage,  income ;  the  taxes 
recommended  under  1  and  2  being  relied  on  to  yield  at  least  as 
large  a  revenue  as  is  now  secured  by  the  taxes  to  be  abolished. 

4.  Assumption  by  the  State  treasury  of  county  expenses. 

5.  Appropriation  by  the  State  of  the  revenue  from  taxes  on 
corporate  excess,  now  distributed  among  the  several  cities  and 
towns. 


HOUSE 


No.  477. 


[Bill  accompanying  the, petition  of  Horatio  G.  Curtis.  Taxation.] 


Commonwealth  of  Massachusetts. 


In  the  Year  One  Thousand  Eight  Hundred  and  Ninety-eight. 


AN  ACT. 

To  exempt  Intangible  Personal  Property  from  Taxation  as  Personal  Estate 
of  Persons  to  be  taxed. 

Be  it  enacted  by  the  Senate  and  House  of  Bepresentatives  in  General 
« Court  assembled ,  and  by  the  authority  of  the  same ,  as  follows: 

Section  1.  Section  four  of  chapter  eleven  of  the  public  statutes,  as 
amended  by  chapter  seventy-six  of  the  acts  of  the  year  eighteen  hundred 
and  eighty-two,  and  by  chapter  two  hundred  and  twenty-eight  of  the  acts 
of  the  year  eighteen  hundred  and  eighty-seven,  and  by  chapter  three  hun¬ 
dred  and  sixty-three  of  the  acts  of  the  year  eighteen  hundred  and  eighty- 
eight  is  hereby  further  amended  by  striking  out  all  of  said  section  after 
the  first  three  lines  and  inserting  the  following  words :  “  But  shall  not 
include  money  at  interest,  nor  debts  due  the  persons  to  be  taxed,  except  as 
provided  in  sections  fourteen,  fifteen  and  sixteen  of  this  chapter,  nor, 
except  as  provided  in  chapter  thirteen,  any  public  stocks  or  securities, 
stocks  in  turnpikes,  bridges  or  moneyed  corporations,  or  other  corpora¬ 
tions  organized  within  or  without  the  State,  nor  any  bonds  of  any 
municipal,  railroad,  street  railway  or  other  corporations,  wherever  organ¬ 
ized,  nor  any  income  derived  from  any  source,  except  as  provided  in 
.section  eight,”  so  as  to  read  as  follows  :  — 

“  Section  4.  Personal  estate  shall,  for  the  purpose  of  taxation,  include 
goods,  chattels,  money,  and  effects  wherever  they  are,  ships  and  vessels 
at  home  or  abroad,  except  as  provided  in  section  eight,  but  shall  not 
include  money  at  interest,  nor  debts  due  the  persons  to  be  taxed,  except 
as  provided  in  sections  fourteen,  fifteen  and  sixteen  of  this  chapter,  nor, 
except  as  provided  in  chapter  thirteen,  any  public  stocks  or  securities, 
stocks  in  turnpikes,  bridges  or  moneyed  corporations,  or  other  corpora¬ 
tions  organized  within  or  without  the  State,  nor  any  bonds  of  any 
municipal  railroad,  street  railway,  or  other  corporations,  wherever  organ¬ 
ized,  nor  any  income  derived  from  any  source,  except  as  provided  in 
section  eight.” 

Section  2.  This  act  shall  take  effect  on  the  first  day  of  May,  in  the 
year  eighteen  hundred  and  ninety-nine. 

Section  3.  Chapter  seventy-six  of  the  acts  of  the  year  eighteen  hun¬ 
dred  and  eighty-two,  chapter  two  hundred  and  twenty-eight  of  the  acts  of 
the  year  eighteen  hundred  and  eighty-seven,  chapter  three  hundred  sixty- 
three  of  the  acts  of  the  year  eighteen  hundred  and  eighty-eight,  and  all 
other  acts  and  parts  of  acts  inconsistent  herewith  are  hereby  repealed. 


Is  the  Exemption  of  Intangible  Personalty 
Within  the  Power  of  the  General 
Court  ? 


Mr.  Chairman  and  Gentlemen  :  — 

It  is  my  purpose  to  confine  my  remarks  to  the  discussion  of  the 
proposed  statute  entitled  “  An  Act  to  Exempt  Intangible  Personal 
Property  from  Taxation  as  Personal  Estate  of  Persons  to  be 
Taxed,”  and  to  the  third  recommendation  of  the  majority  report 
of  the  Tax  Commission  of  1897. 

It  is  not  intended  to  inquire  into  the  expedience  of  the  proposed 
legislation,  and  therefore,  I  shall  have  no  occasion  to  consider  the 
question  whether  or  not  the  taxes  proposed  under  sections  one  and 
two  of  the  report  would  equal  the  revenue  lost  by  the  abolition  of 
taxes  on  intangible  personalty.  The  rapidly  increasing  public  in¬ 
debtedness, necessarily  adding  to  the  annual  tax  levy,  the  increasing 
wealth  of  the  people,  and  the  fact  that  intangible  property  escapes 
to  a  great  extent  all  taxation,  are  matters  within  the  province 
of  the  legislature  for  its  consideration  upon  the  question  whether 
more  stringent  laws  relating  to  the  collection  of  taxes  are  required. 

The  proposed  abolition  of  taxes  on  stocks,  bonds,  loans  on 
mortgage  and  income,  when  such  securities  run  high  in  the  millions 
and  are  held  by  comparatively  few  persons  of  the  community,  is 
a  departure  from  the  Massachusetts  principle  of  proportionate  and 
reasonable  taxation,  required  under  the  fundamental  law  of  the 
Commonwealth,  and  at  the  outset  raises  the  question  of  the  au¬ 
thority  of  the  General  Court  to  pass  such  legislation. 

The  power  to  exempt  from  taxation  is,  I  suppose,  implied  in  the 
power  to  tax,  but  the  power  of  the  General  Court  to  tax  is  far 
from  an  absolute  power.  Its  limitations  are  plain.  The  authority 
to  tax  is  delegated  by  the  Constitution  to  the  General  Court  sub¬ 
ject  to  the  restriction  and  qualification  that  the  tax  on  property 
shall  be  proportionate  and  reasonable.  The  courts  of  the  Common¬ 
wealth  have  not  hesitated  to  declare  statutes  imposing  dispropor- 
tional  taxes  beyond  the  power  of  the  Legislature  to  enact.  The 
authorities  cited  herein  are  Massachusetts  cases,  and  these  cases 
alone  are  urged  in  support  of  my  contention  because  the  decisions 
of  the  courts  in  other  jurisdictions  are  governed  by  the  funda¬ 
mental  law  of  such  jurisdictions,  which  may  materially  differ  from 
the  provisions  of  the  Constitution  of  Massachusetts. 

It  is  intended  to  consider  the  proposed  act  first  as  a  statute  y  the 


6 


object  of  which  is  the  exemption  of  property,  and  secondly  as  an 
act  to  establish  a  system  of  valuation. 

An  Act  of  Exemption. 

Assuming  the  proposed  law  to  be  an  exempting  act  as  its  title 
indicates,  it  fails  to  meet  the  requirements  of  an  exemption  act  in 
the  following  essential  particulars  :  — 

It  is  not  a  measure  for  the  relief  of  persons  who  by  reason  of 
poverty  or  any  other  reason  are  unable  to  contribute  to  the  pay¬ 
ment  of  the  public  expenses. 

Its  object  is  not  a  public  purpose  in  a  legal  sense,  and  therefore 
not  valid  as  the  exercise  of  any  power  to  tax  property.  The  ex¬ 
emption  would  apply  to  property  not  generally  held  by  the  inhabi¬ 
tants  without  the  imposition  of  any  duty  upon  the  owner  thereof 
or  any  restriction  upon  the  use  of  the  exempted  property,  and 
therefore,  the  exemption  would  affect  the  incidence  of  the  whole 
tax.  The  title  itself  discloses  a  discrimination  in  favor  of  classes 
of  property. 

The  duty  of  each  individual  to  contribute  his  share  to  the  ex¬ 
pense  of  government  is  clearly  prescribed  in  Article  X  of  the 
Declaration  of  Rights  in  the  following  language :  — 

“  Each  individual  of  the  society  has  a  right  to  be  protected  by  it  in  the 
enjoyment  of  his  life,  liberty  and  property  according  to  standing  laws. 
He  is  obliged  consequently  to  contribute  his  share  to  the  expense  of  this  pro¬ 
tection,  to  give  his  personal  services  or  an  equivalent  when  necessary,  but 
no  part  of  the  property  of  an  individual  can  with  justice  be  taken  from 
him  or  applied  to  public  uses  without  his  own  consent,  or  that  of  the  rep¬ 
resentative  body  of  the  people  ...  And  whenever  the  public  exigencies 
require  that  the  property  of  any  individual  should  be  appropriated  to  pub¬ 
lic  uses,  he  shall  receive  a  reasonable  compensation  therefor.” 

The  proposed  exemption  certainly  provides  no  contribution 
front  the  holders  of  such  exempted  property,  for,  instead  of 
imposing  a  burden,  it  confers  a  direct  benefit  upon,  and  enhances 
the  value  of  the  exempted  property  as  the  direct  consequence  of 
the  exemption.  This  is  a  private  interest  of  the  owners  of  the 
favored  property.  The  public  benefit,  if  any,  would  depend  upon 
the  use  the  owners  might  make  of  the  property ;  and  because  no 
duty  is  imposed  upon  the  owners  with  regard  to  its  use,  and  no 
restriction  is  placed  upon  the  property  itself,  it  is  not  a  public 
object  in  a  legal  sense. 

It  is  urged  with  some  force  that  the  Commonwealth  would 
derive  a  substantial  advantage  by  the  exemption  of  intangible 
personalty  from  taxation,  on  the  ground  that  such  a  preference 
would  eventually  attract  that  class  of  property  into  the  Common¬ 
wealth,  and  encourage  and  increase  business  enterprises. 

Still  that  argument  failed  to  impress  the  Court  in  the  case  of 
Lowell  vs.  Boston,  111  Mass.  454,  involving  the  question  of  the 
constitutionality  of  Statute  1872,  C.  364. 

There  the  city  of  Boston  was  authorized  by  an  act  of  the 
Legislature  to  issue  $20,000,000  in  bonds,  and  to  lend  the  pro- 


7 


ceeds  of  the  same  on  mortgage  to  the  owners  of  the  land  on 
which  the  buildings  were  burned  by  the  great  fire  of  1872. 

In  this  case  the  Court  said  : — 

“If  it  be  assumed  that  private  interests  of  the  owmers  will  lead  them 
to  re-establish  warehouses,  shops,  manufactories  and  stores,  and  that  the 
trade  and  business  of  the  place  will  be  enlarged  or  revived  by  means  of 
the  facilities  thus  provided,  still  these  are  considerations  of  private  inter¬ 
ests  ’  and,  if  expressly  declared  to  he  the  aim  and  purpose  of  the  act ,  they 
would  not  constitute  a  public  object  in  a  legal  sense.” 

Further  the  Court  say,  page  473  :  — 

“  The  expenditure  authorized  by  this  statute,  being  for  private  and  not 
for  public  objects  in  a  legal  sense,  it  exceeds  the  constitutional  power  of 
the  Legislature,  and  the  city  cannot  lawfully  issue  the  bonds  for  the  pur¬ 
poses  of  the  act.” 

The  statute  decided  unconstitutional  in  Lowell  vs.  Boston  con¬ 
tained  a  provision  providing  for  the  reimbursement  of  the  city,  on 
account  of  the  issue  of  and  the  liability  to  pay  the  bonds ;  and, 
for  the  purpose  of  securing  the  city  against  loss,  there  was  a  pro¬ 
vision  requiring  mortgages  upon  the  land  and  structures  erected 
thereon,  to  be  given  to  the  city  by  the  owners  of  such  land.  But 
the  fact  that  the  city  would  ultimately  be  reimbursed  for  all  it 
should  invest  in  the  enterprise,  even  though  the  reimbursement 
was  made  by  the  persons  who  had  shared  the  benefit,  was  held 
not  sufficient  to  change  the  character  of  the  enterprise.  The  loan 
of  the  credit  of  the  city  was  for  a  private  purpose. 

The  proposed  statute  contains  no  suggestion  of  a  public 
purpose,  and  no  provision  to  make  good  to  the  Commonwealth 
what  it  would  lose  by  the  exemption.  But  the  argument  is  that 
other  statutes  will  be  passed  which  will  reimburse  the  Common¬ 
wealth  for  any  losses  it  might  sustain  by  reason  of  the  operation 
of  the  proposed  act,  and  for  that  purpose  a  statute  imposing  a 
tax  upon  “  Occupants  of  Habitations,”  and  another  imposing 
a  tax  upon  “  Legacies  and  Successions  ”  are  recommended  by  the 
Commission. 

Since  it  was  held  that  the  reimbursement  provisions  in  St.  1872, 
C.  364,  did  not  affect  the  obvious  purpose  of  the  statute,  a  private 
interest,  there  is  even  less  force  in  the  argument  that  the  reim¬ 
bursement  provisions  in  subsequent  statutes  would  avail  anything. 
Besides,  the  constitutionality  of  an  act  of  the  Legislature  must 
be  determined  by  its  own  provisions.  The  advocates  of  the  pro¬ 
posed  legislation,  when  they  point  out  a  substitute  for  certain  taxes 
heretofore  raised,  are  dealing  with  a  matter  within  the  province 
of  the  Legislature,  but  when  they  propose  to  make  use  of  that 
substitute  for  the  purpose  of  giving  force  or  validity  to  a  statute 
which  the  Legislature  has  no  power  to  enact,  they  confound  the 
question  of  expediency,  which  is  within  the  legislative  power,  with 
absolute  authority  to  tax,  which  the  Legislature  does  not  possess 
under  the  Constitution.  So  it  is  no  answer  to  the  objection,  on 
constitutional  grounds,  to  this  statute,  to  urge  that  the  amount  lost 


8 


by  its  enforcement  will  be  made  good  by  heavier  assessments 
upon  the  property,  or  from  new  sources  of  income,  such  as  assess¬ 
ments  upon  successions.  Keeping  in  mind  that  exempting  prop¬ 
erty  from  taxation  is  the  exercise  of  the  taxing  power,  your 
attention  is  called  to  the  provisions  of  the  Constitution  which 
delegate  to  the  Legislature  the  power  to  tax.  The  Constitution 
of  Massachusetts,  C.  1,  Art.  4,  authorizes  the  General  Court 

“  to  impose  and  levy  proportional  and  reasonable  assessments,  rates  and 
taxes,  upon  all  the  inhabitants  of,  and  persons  resident,  and  estates  lying 
within  the  said  Commonwealth  ;  and  also  to  impose  and  levy  reasonable 
duties  and  excises  upon  any  produce,  goods,  wares,  merchandise  and 
commodities,  whatsoever,  brought  into,  produced,  manufactured  or  being 
within  the  same.”  .  .  . 

“And  while  the  public  charges  of  Government,  or  any  part  thereof  shall 
be  assessed  on  polls  or  estates,  in  the  manner  that  has  hitherto  been  prac¬ 
ticed,  in  order  that  such  assessments  may  be  made  with  equality,  there 
shall  be  a  valuation  of  estates  within  the  Commonwealth,  taken  anew  once 
in  every  ten  years  at  least,  and  as  much  oftener  as  the  General  Court  shall 
order.” 

The  first  annual  tax  act  passed  after  the  adoption  of  the  Con¬ 
stitution,  St.  1780,  C.  43,  directing  the  apportionment  and  levy  of 
a  tax  of  three  hundred  and  seventy-four  thousand,  seven  hundred 
and  ninety-five  pounds,  eight  shillings  and  two  pence,  plainly 
shows  the  contemporaneous  construction  the  legislators  of  that 
time  put  upon  the  Constitution. 

There  were  property  exemptions  it  is  true,  but  these  were  mainly 
household  furniture,  wearing  apparel,  farming  utensils,  and  the 
tools  of  mechanics,  said  by  the  Court  in  Day  vs.  Lawrence,  167 
Mass.,  371,  to  be 

“  kinds  of  property  which  every  tax-payer  might  have,  and  the  complete 
exemption  of  which  would  have  little  effect  upon  the  incidence  of  the 
wiiole  tax.” 

Note  the  exceptions  made  in  this  Act. 

“  Provided ,  nevertheless,  That  the  following  persons,  viz  : — The  Presi¬ 
dent,  Fellows,  Professors,  Tutors,  Librarian  and  Students  of  Harvard 
College,  who  have  their  usual  residence  there,  and  settled  Ministers  of  the 
Gospel,  Grammar  School  Masters,  are  not  to  be  assessed  for  their  polls  or 
their  estates,  unless  their  real  estate  be  not  under  their  actual  management 
and  improvement,  or  not  in  the  parishes  where  they  are  settled ;  and  also 
all  persons  who  have  the  management  and  improvement  of  the  estate  of 
Harvard  College  are  not  to  be  assessed  for  the  same ;  and  if  there  are  any 
other  persons  who  through  age,  infirmity  or  poverty,  are  unable  to  pay  as 
others  towards  the  public  charges,  or  any  w  idows  or  orphans  wrho,  depend¬ 
ing  on  the  interest  of  their  money  for  subsistence,  have  by  the  state  of  the 
currency,  been  so  reduced  as  that  in  the  judgment  of  the  Assessors  they 
ought  to  be  relieved  in  their  taxes  in  any  such  case,  the  Assessors  may 
exempt  their  polls  or  estates,  or  abate  any  part  of  wrhat  they  are  set  at  as 
they,  on  their  oaths,  shall  think  just  and  equitable.  And  the  Justices  in 
their  sessions,  in  their  respective  counties  assembled,  in  granting  a  county 
tax  or  assessment,  are  hereby  ordered  and  directed  to  apportion  the  same 
on  the  several  towrns  and  other  places  in  such  county  in  proportion  to  this 
tax.  And  the  Assessors  in  each  town  in  this  Commonwealth  are  also 
directed  in  making  a  town  or  county  tax  or  assessment  to  govern  them¬ 
selves  by  the  same  rule.” 


9 


Schedules  were  required,  containing 

“a  true  and  perfect  list  of  polls  and  of  all  their  real  and  personal  estate* 
they  are  possessed  of  on  the  thirtieth  day  of  May,  agreeable  to  the  descrip¬ 
tion  of  real  and  personal  estate,  and  incomes  from  professions,  faculty,, 
handicraft,  trade  or  employment  as  aforesaid.” 

Persons  failing  to  bring  in  a  list  were  not  entitled  to  apply  to  the 
Court  of  General  Sessions,  now  County  Commissioners,  for  abate¬ 
ment. 

The  list  sworn  to 

‘  ‘  shall  be  a  rate  of  that  person’s  proportion  to  the  tax,  who  presented  the 
same,  which  the  Assessors  may  not  exceed.” 

The  assessors  are  not  bound  to  accept  the  list  at  the  present  time. 
They  may  go  outside  of  it  for  information.  Hall  vs.  County 
Commissioners,  10  Allen,  100. 

Observe  herein  the  recognition  of  the  duty  of  each  individual 
“  to  contribute  his  share  to  the  expense  of  this  protection,”  found 
in  the  Declaration  of  Rights.  Observe  also  the  Constitutional 
limitations  upon  the  imposition  of  assessments,  rates  and  taxes. 
Assessments  are  required  to  be  proportional  and  reasonable.  The 
assessors  were  authorized  to  exempt  the  aged,  the  infirm,  the 
poor,  and  widows  and  orphans.  Even  these  exemptions  were  not 
absolute  as  classes.  The  exemption  provision  required  an  inves¬ 
tigation  by  the  assessors  who  were  reminded  of  the  obligation  of 
their  oath  of  office.  Exemptions  then  were  made  to  lighten  the 
burden  of  persons  unable  to  bear  taxation.  They  are  now  urged 
to  relieve  property  of  certain  kinds  from  taxation.  This  is  a 
departure  from  the  principle  of  equal  taxation. 

Having  made  provision  for  the  assessment  of  the  polls  and  real 
estate,  the  tax  act  directed  the  assessors  to  assess 

“  on  the  inhabitants  of  each  town  or  place  according  to  the  proportion  of 
the  amount  and  just  value  of  their  whole  personal  estate,  including  money 
at  interest  more  than  they  pay  interest  for  (excepting  such  monies  as  are 
lent  to  the  government  and  by  an  act  of  government  exempted  from  taxa¬ 
tion),  monies  of  all  kinds  in  hand  and  also  the  amount  of  the  just  value  of 
all  goods,  wares  and  merchandise,  stock  in  trade,  vessel's  of  all  sorts,  with 
their  stores,  appurtenances  and  appendages,  plate,  horses,  oxen  and  cattle, 
of  all  sorts  and  ages,  sheep,  swine  and  grain  of  all  sorts,  and  all  kind  of 
produce  of  the  land,  and  all  other  property  whatsoever ,  excepting  household 
furniture,  wearing  apparel,  farming  utensils,  and  the  tools  of  mechanics, 
on  the  thirtieth  day  of  May  instant ;  and  the  current  price  of  the  real  and 
personal  estate  on  the  said  thirtieth  day  of  May  before  mentioned,  in  gold 
or  silver  or  in  bills  of  credit,  equivalent  current  within  this  Commonwealth, 
shall  be  considered  as  the  just  value  of  the  same.  And  on  the  amount  of 
their  income  from  any  profession,  faculty,  handicraft,  trade  or  employ¬ 
ment  ;  and  also  on  the  amount  of  all  incomes  and  profits  gained  by  trading 
by  sea  and  on  shore.” 

Then  follow  provisions  for  taxing  goods,  wares,  merchandise 
and  commodities  in  trade. 

The  provisions  in  the  original  tax  act,  specifying  the  persons- 


10 


who,  under  certain  circumstances,  might  be  exempted  from  taxa¬ 
tion,  show  the  interpretation  the  authors  of  that  act  gave  to  the 
Constitution  in  respect  to  the  power  conferred  upon  the  legisla-  r 

ture  with  respect  to  the  exemption  of  persons  from  taxation. 

Successive  legislatures  from  1780  to  the  present  time  have  recog¬ 
nized  the  limitations  of  the  power  to  exempt  property  from  taxa¬ 
tion.  Indeed  the  General  Court  has,  from  time  to  time,  limited 
the  amount  of  property  that  might  be  exempted  as  household 
furniture  to  a  sum  less  than  $1,000,  (St.  1829,  C.  27),  and  tools 
of  mechanics  to  the  amount  of  $100,  (St.  1865,  C.  206),  until  at 
the  present  time  wearing  apparel  seems  «to  be  the  only  personal 
property  unlimited  in  value  which  the  owner  may  enjoy  without 
taxation.  And  the  fact  that  only  a  limited  quantity  of  such 
properties,  except  wearing  apparel,  can  be  exempted  under  the 
statutes,  notwithstanding  their  general  distribution  among  tax¬ 
payers,  not  only  indicates  in  a  general  way  the  construction  the 
General  Court  has  given  to  the  Constitution  upon  the  matter  of 
exemption,  but  these  limited  exemptions  furnish  strong  grounds 
for  the  support  of  the  argument  that  only  limited  amounts  of  such 
property,  even  if  generally  distributed,  can  be  exempted.  The 
proposed  exemption  of  classes  of  property  in  value  perhaps  ex¬ 
ceeding  all  the  remaining  property  subject  to  taxation,  (see  Re¬ 
port  of  Commissioners  and  the  report  of  the  Committee  on  Taxaj 
tion  of  the  Boston  Executive  Business  Association) ,  will,  in  my 
judgment,  necessarily  work  such  an  inequality  in  the  distribution 
of  the  burden  of  taxation  as  to  make  such  legislation  repugnant 
to  the  Constitution.  The  proposed  act  imposes  no  duty  upon  the 
fortunate  holders  of  such  property,  nor  any  restriction  upon  its 
use.  To  all  intents  and  purposes  it  is  legislation  for  a  private, 
not  a  public  purpose,  and,  therefore,  fairly  comes  within  the  doc¬ 
trine  laid  down  in  Lowell  vs.  Boston. 

Such  legislation  obviously  will  increase  the  value  of  private 
interests  therein,  and  it  does  not  even  purport  to  be  made  for  any 
public  object.  It  is  not  a  measure  for  the  relief  of  persons  who 
are  unable  to  pay,  but  it  is  for  the  benefit  of  property  and  such 
persons  as  possess  it.  The  ability  of  the  owner  to  pay  does 
not  enter  into  the  matter  at  all.  The  property  exempted  is  not 
generally  held  by  the  taxpayers,  and  therefore  the  exemption  will 
affect  the  remaining  property  by  making  the  taxation  upon  it  dis¬ 
proportionate.  The  power  to  exempt  property  from  taxation  is 
embodied  in  that  branch  of  the  Constitution  authorizing  the  im¬ 
position  of  assessments,  but  requiring  them  to  be  proportional  and 
reasonable ;  so  an  exemption  must  be  both  proportional  and 
reasonable. 

If  the  General  Court  has  the  power  to  exempt  absolutely  one- 
half  of  the  taxable  property  in  Massachusetts  from  taxation  this 
year,  what  is  to  prevent  the  General  Court  from  exempting  the 
remaining  half  next  year?  If  the  power  to  tax  is  subject  to  limi¬ 
tations,  so  is  the  power  to  exempt  from  taxation,  for  the  latter  is 
the  exercise  of  the  power  implied  in  the  former.  The  proposed 
•exemption  of  intangible  property  from  taxation  appears  to  me  to 


11 


be  neither  proportional  nor  reasonable,  and,  therefore,  in  excess 
of  the  authority  conferred  upon  the  legislators. 

Method  of  Valuation. 

Assuming  the  proposed  legislation  is  intended  to  establish  a 
*  method  of  valuation  as  the  body  of  the  act  indicates,  it  appears  to 

me  more  objectionable  than  St.  1872,  C.  306,  which  was  decided 
to  be  unconstitutional  in  the  case  of  Cheshire  vs.  County  Commis¬ 
sioners  on  the  ground  that  the  method  of  valuation  there  pro¬ 
vided,  omitted  an  important  element  of  value. 

The  case  of  Inhabitants  of  Cheshire  vs.  County  Commissioners, 
118  Mass.,  386  (1875),  was  a  case  where  objection  was  made  to  a 
statute  on  a  ground  that  the  method  of  valuation  therein  provided 
was  unconstitutional.  The  statute  was  as  follows  : — 

“  All  reservoirs  of  water,  with  the  dams  connected  therewith  and  the 
lands  under  the  same,  used  to  maintain  a  uniform  supply  of  water  for 
mill  power,  shall  be  assessed  for  the  purposes  of  taxation  in  the  town  or 
towns  where  located,  at  a  valuation  not  exceeding  a  fair  valuation  of  land 
of  like  quality  in  the  immediate  vicinity.” 

The  Court  say  (page  389), 

‘  ‘  Practically  it  is  impossible  to  secure  exact  equality  or  proportion  in 
the  imposition  of  taxes  or  distribution  of  public  burdens  requiring  taxation. 
The  test,  in  all  legislative  enactments  affecting  taxation,  is  that  their  aim 
be  towards  that  result,  by  approximation  at  least.  No  enactment  respect¬ 
ing  taxation  under  this  clause  conforms  to  its  provisions  if  it  directly  and 
necessarily  tends  to  disproportion  in  the  assessment.  It  appears  to  us 
that  the  practical  operation  of  this  statute,  construed  as  we  have  found 
ourselves  compelled  to  construe  its  terms,  is  directly  and  necessarily  to 
produce  disproportion  to  a  greater  or  less  extent  in  the  levy  of  all  taxes 
based  upon  valuations  which  include  such  property  as  that  to  which  it 
applies.  That  being  its  necessary  tendency,  it  is  immaterial  whether  the 
effect  upon  the  general  distribution  of  the  tax  be  great  or  small,  it  is 
equally  in  violation  of  the  Constitution,  and  therefore  not  within  the 
legitimate  authority  of  the  Legislature.” 

The  proposed  statute  under  consideration  appears  to  exclude  equal¬ 
ity  and  proportion.  It  requires  assessors  to  exclude  certain  property 
in  the  valuation  made  by  them,  so  did  the  statute  declared  uncon¬ 
stitutional  in  the  above  case,  and  the  property  and  value  so  excluded 
were  the  additions  and  improvements  upon  certain  lands  having 
reservoirs  of  water  upon  them.  The  St.  of  1872  was  held  uncon¬ 
stitutional  for  excluding  one  or  more  of  the  elements  of  value. 
The  proposed  statute  excludes  all  of  the  elements  of  value,  viz. : 
an  entire  class  of  property  called  intangible  personalty.  There- 
%  fore,  I  think  the  proposed  statute  unconstitutional,  because  it 

establishes  a  method  of  valuation  which  not  only  omits  one 
element  of  value  of  property,  but  it  omits  all  of  the  elements  of 
value  by  omitting  the  property  itself.  The  proposed  statute 
t  establishes  a  method  of  valuation  of  property  in  general  by  pro¬ 

viding  that  certain  property  shall  be  excluded  from  valuation.  A 
brief  review  of  a  few  of  the  cases  will  show,  I  think,  the  proposed 


12 


statute  cannot  stand  the  tests  under  the  clause  of  the  Constitution 
requiring  taxes  to  be  proportional  and  reasonable. 

In  the  case  of  Portland  Bank  vs.  Apthorp,  12  Mass.,  252, 
(1815),  which  was  a  case  of  the  taxation  of  a  bank,  held  to  be 
within  the  second  branch  of  the  taxing  power,  the  Court  defines 
the  meaning  of  the  words  in  the  Constitution  from  which  the 
authority  of  the  Legislature  to  impose  taxes  and  to  obtain  a 
revenue  is  derived,  to  wit : 

“  to  impose  and  levy  proportionate  and  reasonable  assessments,  rates  and 
taxes  upon  all  the  inhabitants  of,  and  persons  resident,  and  estates  lying 
within  the  Commonwealth,” 

as  a  provision 

“  intended  as  a  contribution  of  the  individual  citizens,  in  proportion  to  the 
property,  whether  real  or  personal,  which  they  are  respectively  worth.” 

“  The  exercise  of  this  power  (that  of  imposing  and  levying  rates  and 
taxes),  requires  an  estimate  or  valuation  of  all  the  property  in  the  Com¬ 
monwealth  ;  and  then  an  assessment  upon  each  individual  according  to  his 
proportion  of  that  property.  To  select  any  individual  or  company,  or  any 
specific  article  of  property,  and  assess  them  by  themselves,  would  be  a 
violation  of  this  provision  of  the  Constitution.” 

Is  this  not  substantially  what  the  proposed  legislation  will 
effect?  Is  this  legislation  calculated  to  require  the  individual 
citizen  to  contribute  to  the  expense  of  the  government  in  propor- 
to  his  property  ?  I  think  not.  It  is  calculated  to  require  citizens 
to  contribute  in  proportion  to  the  amount  of  their  holdings  in 
certain  classes  of  property. 

Com.  vs.  The  People’s  Five  Cents  Savings  Bank,  5  Allen,  428, 
(1862),  was  a  case  involving  the  constitutionality  of  St.  1862, 
C.  224,  imposing  a  tax  on  insurance  companies  and  savings 
banks. 

In  respect  to  the  claim  that  the  tax  could  be  maintained  under 
the  branch  of  the  Constitution  authorizing  the  Legislature 

“  to  impose  and  levy  proportional  and  reasonable  assessments,  rates  and 
taxes  upon  all  the  inhabitants  of,  and  persons  resident,  and  estates  lying 
within  said  Commonwealth,” 

The  Court  said : 

“  Viewed  as  a  tax  assessed  under  this  clause,  it  would  be  contrary  to  its 
provisions,  because  it  is  not  proportional  on  all  persons  and  estates  in  the 
Commonwealth,  but  is  assessed  on  a  certain  class  selected  by  the  Legis¬ 
lature  for  the  specific  purpose  of  imposing  a  tax.” 

The  statute  was  held  to  be  constitutional  on  the  ground  that 
the  tax  was  an  excise  on  the  franchise  belonging  to  the  defend¬ 
ants  and  within  the  doctrine  of  the  case  of  Portland  Bank  vs. 
Apthorp,  12  Mass.,  252. 

The  case  of  Oliver  vs.  Washington  Mills,  11  Allen,  268,  (1865), 
decided  that  the  Legislature  had  no  authority  to  require  domestic 
corporations  to  pay  into  the  treasury  of  the  Commonwealth  a 
certain  portion  of  all  dividends  declared  by  them  on  shares  of 


13 


non-resident  owners,  that  the  proposed  tax  was  a  tax  on  property, 
viz.  :  the  shares  of  non-resident  holders,  and  not  a  corporate 
charge.  This  case  is  authority  that  shares  of  a  corporation  are 
property  of  the  shareholder.  In  the  language  of  the  Court 

“  the  requirement  of  the  Constitution  is  that  all  taxes  shall  be  ‘propor¬ 
tional.’  If  any  force  or  effect  is  to  be  given  to  this  word,  it  must  be 
regarded  as  a  restriction  on  the  power  of  the  legislative  department  of 
the  government,  and  to  have  been  intended  to  prevent  the  exercise  of  an 
unlimited  right  to  impose  taxes.” 

Com.  vs.  Hamilton  Mfg.  Co.,  12  Allen,  298,  (1865),  decided 
as  constitutional  (St.  1864,  C.  208),  requiring  domestic  corpora¬ 
tions  to  pay  to  the  treasurer  a  tax  upon  the  excess  of  the  market 
value  of  the  stock  over  the  value  of  their  real  estate  and  machinery 
taxable  in  the  city  or  town  where  they  were  situated  ;  and  the 
fact  that  the  corporation  owned  bonds  of  the  United  States  and 
that  some  of  the  stockholders  lived  in  other  States  of  the  Union 
would  not  exempt  it  from  liability  to  pay  the  full  amount  of  the 
tax.  Held  this  tax  was  upon  the  franchise  of  the  corporation. 

In  this  case  the  Court  says,  page  308  :  — 

“But  the  legislation  of  this  Commonwealth  in  relation  to  taxation, 
differs  essentially  from  that  of  New  York.  Under  the  general  laws  regu¬ 
lating  taxation  in  Massachusetts,  corporations  have  never  been  liable  to 
taxation  for  any  personal  estate  owned  by  them ,  except  machinery,  which 
on  account  of  its  fixed  character  and  connection  with  the  buildings  in 
which  it  is  used,  has  been  regarded  as  in  the  nature  of  real  estate,  and  so 
taxable  in  the  place  -where  it  is  situated.” 

On  the  other  hand,  by  the  laws  regulating  taxation  in  New 
York,  the  corporation  is  liable  to  taxation  on  such  portion  of  its 
capital  not  invested  in  real  estate,  and  under  the  New  York 
statutes  any  tax  other  than  upon  real  estate  is  assessed  upon  the 
personal  property  of  the  corporation,  whatever  may  be  the  method 
adopted  to  ascertain  the  amount.  Besides, 

“  under  the  laws  of  New  York,  a  portion  of  the  capital  of  banks  was  re¬ 
quired  ito  be  invested  in  public  securities  in  order  to  furnish  a  safe  basis 
for  bills  which  the  banks  were  authorized  to  issue.” 


Discrimination  Against  Certain  Classes  of  Property. 

There  is  another  objection  to  this  law.  It  is  a  discrimination 
in  favor  of  certain  classes  of  personalty,  and  so  may  come  within 
the  case  of  Gleason  vs.  McKay,  134  Mass.,  419,  where  it  was  de¬ 
cided  that  St.  1878,  C.  275,  was  unconstitutional. 

The  constitutional  provision  that  the  Legislature  shall  only 
impose  proportional  and  reasonable  taxes 

“  is  violated  if  taxes  are  imposed  upon  one  class  of  persons  or  property  at 
a  different  rate  from  that  which  is  applied  to  other  classes,  whether  the 
discrimination  is  effected  directly  in  the  assessment  or  indirectly  through 
arbitrary  and  unequal  methods  of  valuation.” 


14 


Cooley  on  Taxation,  Chap.  VI.,  page  189. 

If  the  rate  of  taxation  upon  all  classes  of  property  must  be 
the  same,  it  seems  to  follow  that  the  establishment  of  a  method  of 
valuation  which  excludes  one  entire  class  of  property  from  valua¬ 
tion,  will  necessarily  fix  a  higher  rate  on  other  classes  of  property. 

In  the  case  of  Northampton  vs.  County  Commissioners,  145 
Mass.,  108,  the  Court  used  the  following  language  :  — 

“  If,  for  instance,  the  Legislature  should  arbitrarily  designate  a  certain 
class  of  persons  on  whom,  or  a  certain  class  of  property  on  which,  a  tax 
was  to  be  imposed,  without  reference  to  any  rule  of  proportion  or  without 
regard  to  the  share  of  the  public  charge  which  either  should  bear  relatively 
to  that  borne  by  other  persons  or  property,  or  without  regard  to  any 
special  benefit  which  might  accrue  to  the  property  subjected  to  the  tax, 
such  imposition  would  be  unlawful.” 

The  proposed  act  arbitrarily  designates  a  certain  class  of  prop¬ 
erty  which  shall  be  exempt  from  taxation  and  it  necessarily  fol¬ 
lows  that  it  is  in  effect  an  arbitrary  designation  of  all  other  classes 
of  property  not  included  in  its  provisions  as  the  sole  subjects  of 
taxation.  For  these  reasons  it  is  respectfully  submitted  that  the 
act  exempting  intangible  securities  from  taxation  would  be,  if 
passed,  unconstitutional  and  void. 

In  repl/  to  the  inquiry  whether  the  exemption  of  $2,000  income 
from  taxation  may  also  be  unconstitutional,  it  is  enough  to  point 
out  the  fact  that  the  income  tax  is  not  a  property  tax  strictly 
speaking,  and  therefore  the  imposition  of  such  a  tax  is  not  the 
exercise  of  the  limited  power  conferred  by  the  first  clause  requir¬ 
ing  taxes  upon  property  to  be  proportional  and  reasonable.  It 
could  not  be  maintained  under  that  clause.  It  is  an  excise  tax 
authorized  under  another  clause  containing  the  single  restriction 
that  such  a  tax  must  be  reasonable. 

The  case  of  Wilcox  vs.  County  Commissioners,  103  Mass.,  543, 
held  such  a  tax  valid  as  an  excise  tax. 

There  was  intangible  personalty  at  the  time  of  the  adoption  of 
the  Constitution,  but  the  amount  of  it  did  not  bear  the  same 
relative  proportion  to  the  whole  that  it  now  bears.  Public  secur¬ 
ities  were  taxed  as  money  at  interest  until  the  act  of  1793,  and 
private  securities  like  railroad  bonds  have  been  held  to  be  “  debts 
due  ”  under  the  statute,  and  the  money  invested  in  them  as 
“  money  ”  at  interest.” 


Hale  vs.  County  Commissioners,  137  Mass.,  113. 

The  practical  operation  of  the  proposed  legislation  in  the  muni¬ 
cipalities  of  the  Commonwealth,  and  particularly  in  the  city  of 
Malden,  will  be  discussed  by  Mayor  Farnham.  My  duty  ends 
with  the  presentation  of  the  foregoing  reasons  in  support  of  my 
contention,  that  the  proposed  legislation,  if  passed,  would  be 
repugnant  to  the  provisions  of  the  Constitution  requiring  taxes  to 


15 


be  proportional  and  reasonable.  For  more  than  a  century  the 
General  Court  has  recognized  the  restriction  upon  its  powers  to 
tax,  and  at  intervals  the  Courts  have  pointed  out  those  restrictions 
^  in  no  uncertain  terms.  The  Massachusetts  system  of  taxation 

rests  upon  the  just  and  broad  principle  of  equality.  The  General 
Court  has  no  authority  to  discriminate  against  classes  of  property, 
and  it  necessarily  follows  that  the  Legislature  has  no  power  to 
^  discriminate  in  favor  of  classes  of  property  by  exempting  them 

from  taxation  unconditionally,  for  such  legislation  would  indi¬ 
rectly  impose  a  higher  rate  upon  the  unexempted  classes  of 
property. 

It  seems  under  the  case  of  Southampton  vs.  Easthampton, 
8  Pick  ,  380,  that  an  assessment  of  half  a  poll  tax,  upon  an 
individual  is  illegal.  Would  not  a  legislative  enactment  exempt¬ 
ing  properties  of  many  classes,  exceeding,  perhaps,  the  value  of 
the  property  remaining  subject  to  taxation  be  void  for  a  like 
reason  ? 

The  test  applied  in  all  of  the  Massachusetts  cases  involving  the 
extent  of  the  power  conferred  by  the  Constitution  upon  the  Legis¬ 
lature  to  levy  proportional  assessments  is  whether  or  not  the 
legislation  aims  at  uniformity. 

The  present  system  of  taxation  meets  the  requirements  of  this 
test,  for  it  in  a  general  way  provides  for  the  taxation  of  all  prop¬ 
erty.  There  are  some  exemptions  heretofore  noticed  in  part,  but 
these  exemptions  appear  to  me  to  be  justifiable  for  the  reasons 
stated.  These  exemptions  have  never  been  sustained  on  the 
ground  that  the  owners  of  such  exempted  property,  by  such  ex¬ 
emption,  would  be  induced  to  embark  in  business  from  which  the 
community  might  derive  an  incidental  advantage,  but  because  the 
ownership  of  such  exempted  articles,  as  a  rule,  does  not  increase 
the  ability  of  the  owners  to  contribute  toward  the  expense  their 
protection  entails  upon  society.  The  present  system  at  least  ap¬ 
proximates  exact  justice.  To  perfect  the  operation  of  the  present 
system,  the  General  Court  undoubtedly  has  authority  to  create 
tax  districts  and  to  enact  legislation,  making  the  entire  State  a 
tax  district  if  it  pleases,  and  generally  to  pass  laws  affecting  taxa¬ 
tion  of  property  so  long  as  such  legislation  tends  toward  unifor¬ 
mity.  But  the  aim  of  the  proposed  legislation,  it  is  respectfully 
submitted,  is  in  an  opposite  direction  toward  disproportion,  be¬ 
yond  the  scope  of  the  agency  conferred  upon  the  General  Court, 
and  therefore  in  excess  of  its  authority. 


P 


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